On Monday, Japanese leaders made some of their strongest statements yet to support the yen. Finance minister Kiichi Miyazawa, whose ministry sets Japan's currency policy, surprised traders by deploring the yen's decline.

"This week and last week, [market moves] have been too abrupt. We need to watch the situation closely," said Mr Miyazawa. And a power broker in the ruling Liberal Democratic Party told reporters that the yen's depreciation to 126 yen per dollar was "undesirable." LDP policy chief Shizuka Kamei, in remarks to Kyodo news service, said he thinks the currency should be trading at around 120 yen to the dollar.

The statements were notable because Japanese leaders had been seen as supporting the yen's slide. A weaker yen could help Japan by making its exporters more price-competitive overseas, and by relieving the deflationary pressure on Japan's domestic economy, which has been intensified by an influx of low-cost foreign goods.

But the Finance Ministry is growing concerned about the yen's rapid decline. A ministry official said Tokyo doesn't want to "artificially" weaken the yen as an antidote to price deflation. One concern is diplomatic: A sharp fall in the currency could anger the US and Asia, and in a worst-case scenario might set off devaluations like those Asia suffered in the financial crisis of 1997-1998. Yen depreciation "would be a strong concern to Asia and in the US," whose export competitiveness relative to Japan would fall, the official said.

Indeed, other Asian currencies already have been falling against the dollar in lock step with the yen, pushing currencies down toward levels last seen in the aftermath of the Asia crisis. On Monday, South Korea's central bank warned it might have to act to buttress the won. "We are carefully watching the foreign-exchange market and will take steps if needed," said an official at the Bank of Korea. The won has weakened by more than 6% this year to 1,348.80 won per dollar, its lowest level since October 1998.

Another concern is the weak yen's potential impact on financial markets: If investors lose confidence in the yen's ability to retain its value, they may shift money out of Japanese stocks and bonds, hurting the economy. The Japanese finance ministry official stressed, however, that the ministry doesn't believe the yen has depreciated to the point where it will cause diplomatic or financial disruptions. Monday's remarks came after U.S.

officials signaled over the weekend that Washington isn't seeking a weaker yen. "There's no effort to talk the yen down at all," a U.S. official told The Wall Street Journal. The statements by Messrs. Miyazawa and Kamei had only a modest impact on markets.

-- ( The Wall Street Jounral)